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Income Tax Appellate Tribunal, NAGPUR BENCH, NAGPUR
Before: SHRI V. DURGA RAO
The assessee has filed this appeal challenging the impugned order dated 27/02/2023, passed by the learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi, [“learned CIT(A)”], for the assessment year 2013–14.
2. In its appeal, the assessee has raised following grounds:–
“1. Whether on the facts and circumstances of the case, the Learned CIT Appeals was justified in confirming the order of the Learned Assessing Officer by considering the business loss of the appellant to the tune of Rs. 20,60,442/- as speculative loss 2. The Appellant craves leave to add or alter any other ground that may be taken at the time of hearing.”
2 Bhagwati Pulses ITA no.86/Nag./2023
3. Facts in Brief:– The assessee is engaged in the business of manufacturing and trading in grains and pulses. It filed return of income on 29/09/2013, declaring total income at ` 1,93,752, which was processed under section 143(1) of the Income Tax Act, 1961 ("the Act") on 15/04/2014. The Assessing Officer, during the assessment proceedings, found that the assessee has incurred losses in trading of Urad and Toor Pulses in particular transactions. The details of these particular transactions are as follows:– URID Purchase Sales Profit / Quantity Quantity Loss Date Amount Date Amount (in qtl.) (in qtl.) 29/09/2012 242.60 10,91,943 29/09/2012 242.60 8,25,083 (2,66,860) 29/09/2012 480.40 21,62,280 29/09/2012 480.40 16,33,840 (5,28,440) Total 723 32,54,223 723 24,58,923 (7,95,300)
TOOR Purchase Sales Profit / Loss Quantity Quantity Date Amount Date Amount (in qtl.) (in qtl.) 26/10/2012 239.5 11,16,309 26/10/2012 319.2 12,84,780 (2,03,011) 79.7 3,71,482 19/02/2013 972.7 43,78,123 19/02/2013 972.7 35,99,963 (7,78,160) 10/03/2013 717.7 30,55,563 10/03/2013 717.1 27,71,592 (2,83,971) Total 2009 89,21,477 76,56,335 (12,65,142)
From the above chart, the Assessing Officer further observed that the transactions are carried out in the similar day in which assessee has incurred total loss of ` 20,60,442. Urid purchases were made on 29/09/2012 from Pune and Jaipur and sold out on same day at Jalgaon which is not practically possible and the assessee could not furnish any transportation details relating to these transactions. The Assessing Officer further found that with regard to 3 Bhagwati Pulses ITA no.86/Nag./2023 Toor Pulse, purchase was made on 26/02/2013 was made from Navi Mumbai and sold out on similar day to Banaras. In the case of transaction made on 19/02/2013 and 10/03/2013, assessee sold out the goods to the same party on same day at much lower rate. The assessee failed to furnish any transportation details relating to these transactions. Though the assessee has not denied that purchase and sale transactions have not been occurred on the same day, but the only contention of the assessee is that these transactions do not fall within the definition of speculative transaction under section 43(5) of the Act. The assessee filed a detailed and elaborated reply on 16/02/2016. However, the Assessing Officer held that the reply filed by the assessee is not acceptable. The matter of losses was referred to the Jt. Commissioner of Income Tax, Akola Range, Akola, on 17/02/2016, for seeking direction under section 144A of the Act. The directions under section 144A of the Act was received on 23/03/2016, which is reproduced below:– "Please refer to your letter dated 12/02/2016 on the above captioned subject.
On receipt of your proposal seeking direction u/s 144A of the 1. T. Act vide above refer letter an opportunity of being heard was offered to the assessee vide letter dated 22/02/2016 and in response assessee's Authorized Representative Shri P.C. Bhandari, C.A. attended on 23/02/2016 and 29/02/2016 and made written submission vide letter dated 29/02/2016. The submission made by the assessee has been carefully perused and considered. It is noted that the same submission was made by the assessee before the A.O. during the course of assessment proceedings.
It is the contention of the assessee that the assessee has incurred loss of Rs.7,95,300/- in respect of two transactions of Urid and has incurred loss of Rs.12,65,142/- in respect of three transactions of Toor commodity. 2 In this regard, though the assessee has not denied by the assessee that purchase and sale transactions has not occurred on the same day, the only contention of the assessee is that these transactions do not fall within the definition speculative transaction given u/s 43(5) of the I.T. Act. For this the assessee has strongly emphasized on sub-clause (a) u/s 43(5) of the I.T. Act.
4 Bhagwati Pulses ITA no.86/Nag./2023
It is a fact that the transaction as happened without actual delivery of goods. This is very important to ascertain the nature of transaction carried out by the assessee. During the course of assessment proceedings vide written submission dated 16/02/2016 it was submitted by the assessee that the authentic evidences relating to delivery of goods shall be produce before the A.O. within 15 days, which was not done. Further during the course of proceeding u/s 144A also it was submitted by the assessee that the documentary evidences relating to actual delivery of goods shall be produced. However, till date no such evidences has been produced by the assessee. It therefore implies that the assessee is not in possession of any documentary evidences which would show the actual delivery of goods. It is therefore beyond doubt that the transaction has happened without delivery of goods.
Now as per provision u/s 43(5) of the I.T. Act where a contract for purchase or sale of any commodity is settled otherwise than by the actual delivery of commodity the transaction amounts to speculative transaction. Considering the above nature of transaction carried out by the assessee I am of the considered opinion that the aforesaid transaction clearly fall within the definition of this speculative transaction given u/s 43(5) of the Act.
7. With regard to the assessee's reliance on clause (a) u/s 43/5) of the Act for not treating the transaction as speculative, it may be mentioned that the assessee's case is not covered by this sub- clause(a) of section 43(5) of the I.T. Act. Sub-clause(a) of section 43(5) of the I.T. Act excludes only such transactions as entered into by a person to guard against loss through further price fluctuation, In respect of his contracts for actual delivery of goods sold by him. In the Instant case, apparently the transaction was not entered to guard against loss through future price fluctuation since the same was not intended by actual delivery of goods as no actual delivery of goods has been given by the assessee. 8. In view of the above facts, you are directed to treat the total loss of Rs. 20,60,442/- in respect of the said transactions as speculative loss and should not be allowed to be set off against the business income of the assessee. 9. In the assessment order full and clear facts should be given elaborately discussing the issue in hand. 8. Keeping in view of directions received u/s 144A, the amount of ` 20,60,442, in respect of said transactions are treated as speculative losses. The same is not allowed as business loss and added to the business income of the assessee.”
The assessee not being satisfied with the order passed by the Assessing Officer, filed appeal before the first appellate authority.
5 Bhagwati Pulses ITA no.86/Nag./2023
5. The learned CIT(A) dismissed the appeal filed by the assessee, as required evidence for delivery of goods could not be furnished. The observations of the learned CIT(A) are as under:–
“During the assessment proceedings, the AO examined the loss of Rs.20,60,442/- and thereafter the issue was referred to JCIT, Akola Range, Akola seeking direction u/s 144A of the Act, 1961. The JCIT has stated that the appellant has not denied that the purchase and sale transactions has not occurred on the same day, whereas, the only contention is that it not speculative. Based on the documents on record, the JCIT concluded that it is a fact that the transactions has happened without delivery of goods. During the assessment proceedings, the appellant vide written submission dated 16-02- 2016 submitted that the appellant would furnish authentic evidence of delivery of goods before the AO within 15 days but the appellant had not complied. Therefore, JCIT concluded that it is beyond doubt that transactions has happened without any delivery of goods. For reasons stated in page number 8 & 9 of the assessment order, the JCIT, Akola Range directed the AO to treat the total loss of Rs.20,60,442/- as speculative loss. During the appellate proceedings, the appellant furnished written submission stating that the AO has held business loss as speculative loss. The appellant incurred loss on account of toor trading and urid dhall trading. The AO issued notice u/s 133(6) and based on the findings as a result of third party enquiries, the AO held that the transactions are speculative u/s 43(5) of the Act. I have examined the findings of the JCIT, AO as well as the written submission filed by the appellant. The 3rd party enquiries conducted by the Department has revealed that the transactions are speculative in nature. Although, the appellant stated vide written submission dated 16-02-2016 that the requisite evidence for delivery of goods would be furnished, the same was not furnished at all. Therefore, I am in agreement with the AO that such transactions are to be treated as speculative transactions u/s 43(5) of the Act. In view of this, the addition made based on the direction issued u/s 144A of Rs.20,60,442/- is confirmed as the same is held to be a speculative loss. Accordingly, the grounds of appeal are dismissed.”
6. Before us, the learned Authorised Representative submitted Paper Book containing copy of ITR and computation of income, audit report and financial statements, purchase and sale invoices for Urid and Toor Pulses and confirmation from Sauda Brokers. However, the learned A.R. in all fairness submitted that he has no clinching evidence to establish delivery. Alternatively, he submitted that speculation profit of ` 8,35,982, be set–off.
6 Bhagwati Pulses ITA no.86/Nag./2023 Further, it is apparent when both purchase and sales are emanating from the same party i.e., Jupiter Agro and Shanti Pulses generating a loss of ` 10.56 lakh in a span of one day, the transactions cannot be taken at fair value. The learned CIT(A)’s order is cogent and need not be disturbed. However, we direct that speculative loss should be set–off against profit for ` 8,35,982. Consequently, grounds raised by the assessee are partly allowed.
In the result, appeal filed by the assessee is partly allowed. Order pronounced in the open Court on 20/09/2024